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Ralph Levy: Don’t let owner’s death derail a business

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11:09 p.m. CDT May 16, 2014

Ralph Levy is an attorney with the Nashville office of Dickinson Wright, PLLC. He focuses his practice in estate planning, corporate law and health care law. Reach him at rlevy@dickinsonwright.com.
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Business owners are fueled by plans. But what the corner office tends to neglect is a formal strategy for dealing with the most critical crisis: the death of the owner.

Without this plan, the legacy that business owners have worked hard to achieve could evaporate or become stalled in probate.

Given life’s constant uncertainty, if you own a business, now is the time to take control of your estate’s future by following these seven steps:

1. Identify successors. You must identify who you want to lead your company when you’re no longer around. Consider whether you want to sell or transfer the company to a family member or sell to a third party. Take the time to make a firm decision and then communicate your goals to family members, business partners and future successors.

2. Sign it in ink. Make sure your wishes are legally documented. You should include your succession plan in an agreement signed by all shareholders or partners. If you are the sole owner of your company, there are other alternatives, such as signing an option agreement that is funded by a life insurance policy, which can grant a designated person the right to buy a business on preset terms if you die.

3. Consider key person insurance. Death does not stop the financial cycle. Loan documents may include “due on death” clauses. Key person insurance operates like a life insurance policy for a business owner by providing the business with funds to service its debt or to provide the business with liquidity to keep it running.

4. Anticipate tax issues. When your business changes hands, there will always be tax implications you will want to minimize. If the business is sold upon your death, you should consider that there may be taxes to mitigate. If the business is transferred to a family member, gift taxes could enter the equation. Anticipate these tax issues now and strategically plan to lessen the burden for your successors.

5. Get personal affairs in order. A majority of a business owner’s personal net worth is likely tied up in his or her company, so it’s important to make sure your personal and business obligations are coordinated. If you haven’t delved into your personal will, now is the time.

6. Act as if you were selling. You should keep your business primed for a smooth transition. The best way to achieve this is to run your business as if you were going to sell now. Keep all of your business contracts, leases and other agreements current and readily available to those who might need to access them, and make sure you’re not the only person in your company who understands its critical components.

7. Partner with professionals. Planning your business estate is an intricate process, one you don’t want to derail through poor planning. Work with experts such as lawyers, accountants and financial planners to ensure all details are cemented and that your legacy — no matter what’s in store — can last generations.

Ralph Levy is an attorney with the Nashville office of Dickinson Wright, PLLC. He focuses his practice in estate planning, corporate law and health care law. Reach him at rlevy@dickinsonwright.com.